Ben Bernanke stepped down as Chairman of the Federal Reserve on Friday. So what will be his legacy? Bernanke, although he didn't anticipate the financial crisis, steered the Fed through the most turbulent of financial environments since the Great Depression. Notably, as an academic, Bernanke was probably best known for his work on the Great Depression. His key insight was that the collapse of banks during the Great Depression resulted in credit channels not working properly. How well did he steer the Fed over the past eight years? You can read articles where Bernanke's performance is assessed at the WSJ, Project Syndicate and PBS.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of